Question

Question 1 Accounting for Construction Contracts 10 Marks

XYZ Ltd signs a contract on 30 June 2015, agreeing to build a bridge for ABC Limited at a
contract price of $40 million. XYZ Ltd estimates that construction costs will be as follows:
___________________________________________________
Year Ending Cost
___________________________________________________
30 June 2016 $10 000 000
30 June 2017 $16 000 000
30 June 2018 $ 6 000 000
$32 000 000
The contract provides that ABC will make payments on 30 June of each year as follows:
2016 $8 000 000
2017 $20 000 000
2018 $12 000 000
$40 000 000
XYZ now estimates at the beginning of the 2017 financial year that construction costs will be
as follows:
_________________________________________________
Year Ending Cost
___________________________________________________
30 June 2016 $10 000 000
30 June 2017 $21 000 000
30 June 2018 $15 000 000
$46 000 000
Required:
Calculate:
a) Percentage of completion for each of the three years. (4 marks)
b) Revenue to be recognised in each of the three years. (3 marks)
c) Gross profit/loss to be recognised in each of the three years. (3 marks)

Answer 1

1st part of the question

a. percentage completion year 2016=cost incurred to date/estimated total cost

=31%.

likewise 2017: percentage completion is 50%

and 2018:percentage completion is 19%

Step-by-step explanation:

2016

ie: 10000000/32000000

=31.25 or 31%

2017

ie: 16000000/32000000

=50%

2018

ie: 6000000/32000000

=18.75% or 19%